Dollar steady as treasury yields stall

Important Calendar Events

• EUR: ECB President Lagarde speech
• USD: Treasury Secretary Yellen Speech
• GBP: Monthly Retail Sales
• JPY: Annual Core CPI, Monetary Policy Meeting Minutes
• All currencies: WEF Annual Meetings

USD

The dollar exhibited very low volatility on Thursday morning, as traders awaited the release of inflation and unemployment data later in the day. US yields fell across the US Treasury curve on Wednesday and continued retreating on Thursday, putting pressure on the dollar. US unemployment data rose to a three-month high, as soaring Omicron cases disrupt economic activity. These had little effect on the USD though, and the dollar index ranged between 95.44 and 95.70 on Thursday, in anticipation of the FOMC January two-day meeting next week.

On Friday, US Treasury Secretary Yellen is due to speak at the World Economic Forum and her speech may provide some insight into future monetary policy.

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EUR 

On Thursday, ECB head Christine Lagarde in an interview in France Inter radio stated that Eurozone Inflation drivers will ease gradually in 2022 and the European Central Bank will not need to take as aggressive measures to bring inflation down as the Fed. 

Meanwhile, the escalating crisis between Russia and Ukraine may cause further increase in gas prices in the EU and affect overall economic activity. The EU threatened "massive" economic sanctions if Moscow attacks Ukraine, while U.S. Secretary of State Antony Blinken is scheduled to meet Russian Foreign Minister Sergei Lavrov in Geneva on Friday in an attempt to prevent Russian invasion against Ukraine. 

The Euro retreated against the dollar on Thursday, with the EUR/USD rate inching towards its 1.311 support. If the currency pair goes up again, it may find resistance at 1.148, while if it declines further, it may test its 1.131 support.

On Friday, ECB President Christine Lagarde is due to speak at the World Economic Forum on the subject of Global Economic Outlook. Traders will follow her speech for hints on the ECB’s monetary policy.

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GBP 

Rising annual inflation rates in the UK supported the GBP, as traders expected that the Bank of England would tighten its monetary policy to reduce inflation. Annual inflation rose to 5.4% in the UK according to Consumer Price Index data released on Wednesday, while the core annual inflation rate rose to 4.2%. British Prime Minister Boris Johnson could face a vote of no-confidence over the scandal that has erupted when it was revealed that he attended a party during lockdown in May 2020. The British PM, whose approval ratings sunk to an all-time low on Wednesday, attempted to reverse the negative political climate by announcing an end to all Covid-19 restrictions in the UK on Wednesday. 

The sterling was not much affected by the political instability though, and remained strong on Thursday. The GBP/USD rate traded sideways on Thursday, around the 1.363 level, with little volatility throughout the day. If the GBP/USD climbs again, there may be resistance at the 1.375 level, while if the GBP/USD price falls, it may find support at 1.357.

The UK monthly Retail Sales are scheduled to be released on Friday. These provide a measure of the state of the economy and may have some influence on the currency.

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JPY 

USD/JPY continued trading along its downtrend on Thursday with low volatility, ranging from 113.96 to 114.54 and the outlook for the pair is slightly bearish. If the currency rate continues falling, it may find support at 113.48, and further down at 112.55. If the pair starts recovering, resistance may be found at 115.6, while the 116 level may present another resistance point. 

The annual Core Consumer Price Index and the Monetary Policy Meeting Minutes are scheduled to be released on Friday for Japan, but these are not expected to create high volatility for the currency.

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Written by:
Myrsini Giannouli

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